We are at least halfway through third-quarter earnings season, and most of the big-picture statistics are showing a modestly good set of results. There were more beats than misses so far -- which is usually the case -- and few nasty surprises in guidance. But these birds'-eye-view numbers don't tell investors what they need to know: Which companies are doing far better than expected, and why?
As a public service to our readers before we head into a pleasant autumn weekend, I present a table listing the names that have reported large, meaningful upside surprises over the last two weeks. Every company tries to beat by a penny or two, but these names all beat expectations by 50% or more. Upside surprises of that magnitude indicate very strong business momentum, and investors should immediately sit up and take notice.
Although any large beat is a good beat, some are better than others. For instance, sometimes the percentage is meaningless due to the small base. For instance, I cannot get excited about Advanced Micro Devices (AMD) when it only tacked a couple pennies on top of the $0.02-per-share estimate. The same goes for Zynga (ZNGA): It's nice that the company beat, but losing a couple cents instead of 4 is not impressive. Contrast that with Micron Technology (MU), which was expected to do $0.23 but blew it out with $1.51!
Another element to your analysis should be how sustainable the earnings momentum can be. A name like Peabody Energy (BTU) might be showing a stabilization in a depressed business, which is attractive. Or take a name like Forest Labs (FRX), whose new CEO can wring savings out of research-and-development costs while new products drive sales growth. Conversely, a highly volatile name like Alcoa (AA) may see a beat reverse into a miss in the following quarter, since it is so dependent on volatile pricing.
In all cases, however, this list is your best starting point to find those names with the traction that can translate into exciting stock gains.